Hacks for New Investment Property Owners

 

6 Bookkeeping "Hacks" for New Investment Property Owners

Rental homes make great investment. Housing demand means there will always be local residents looking to rent and residential real estate tends to appreciate in value over time. However, its hardly passive income. Managing rental homes is a unique business model that you need to operate to ensure you're making a profit. That means good bookkeeping.

Whether you have one investment property or you are building your portfolio, these bookkeeping hacks can help you maximize your profits, optimize your taxes, and take good care of your long-term investment.

 

1. Maximize Your Tax Advantages

One property or many, every landlord should know their way around investment property tax deductions. You can save thousands of dollars every year by knowing how to file your taxes. As an investment property owner, you are legally considered a small business owner and you can file tax deductions for all or most of your business expenses associated with operating rental homes.

Common rental house tax deductions include:

• Mortgage interest
• Property tax
• Operating expenses
• Depreciation
• Repair costs
• Improvement Depreciation

 

2. Consistently Record and Track Expenses

Keep track of the expenses for each separate property.  Consider maintenance, repairs, utilities, property tax: anything that deducts from your operating funds regarding each property. Keep detailed records of expenses, categorized and organized.

From there, track your expenses by category and magnitude. Tag them, organize them, and chart them to reveal patterns. Then, build a financial plan that anticipates repeating expenses and estimates the cost of unplanned expenses per year.

 

3. Save 1% Property Value for Maintenance Each Year

Create a savings account for property maintenance, or a separate savings account for each property. It is common wisdom to set aside 1% of the property's value every year to cover maintenance and repair expenses. You likely won't need that entire amount every year, but will draw on this savings when big expenses like a new HVAC, roof reinstallation, foundation cracks, or local storm damage repairs are required. 

This simple savings strategy will ensure you have the cash reserves to handle the big expenses associated with home ownership that only strike once every 5-20 years.

Yearly Expenses

• Tune-ups for HVAC, Water Heaters, and other major systems
• Roof inspections and minor repairs
• At least one unexpected and minor-to-moderate repair request
• Landscaping and outdoor maintenance

Looming Expenses

• Roof replacements
• Replacing major appliances like HVAC and water heaters
• Periodic storm damage
• Major repairs like foundation cracks

 

4. Maintain Separate Books for Each Property

When you own multiple rental properties,  you can track your profits and expenses as lump sums. However, you will enjoy more refined and precise bookkeeping if you keep separate books for each property. It may reveal expense patterns unique to each property and reveal the profit/expense balance for each individual investment.

You can then use tools to combine the data for an overall look at your investment business finances.

 

5. Plan for Proactive Maintenance Expenses

Build proactive maintenance into your finances. Calculate the costs of at least one HVAC and plumbing service a year. Consider building an annual maintenance agreement with local services to ensure each property receives a cleaning and tune-up of essential systems (Roof, HVAC, water heater, pool, ect) every year. Whether you anticipate or schedule these expenses, being financially prepared for them will keep your books tidy, balanced, and optimized for realistic cash flow.

 

6. Make Use of Bookkeeping Software

In the modern era, you don't have to optimize your bookkeeping practices by hand. There are some great bookkeeping software options out there, some even built for the unique needs of rental property investors. Use these tools to easily track and categorize your income, expenses, and operating costs and even prepare your taxes based on the refined data you will be able to track for each property.

 

Work with Rental Bookkeeping Experts at Leaf Management

Last but not least, you can optimize your investment property bookkeeping with the help of pro property managers like Leaf Management. We have helped hundreds of landlords achieve optimal financial performance. Our skill with expense tracking, maintenance planning, and savvy tax deductions will help to keep your properties profitable and in good condition year after year.